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British agriculture went through several scares this summer, including floods and a bout with hoof-and-mouth disease. Despite all of that, farmers expect to do relatively well this year. Why?
First, the disease outbreak was quickly contained, with the government being able to isolate the source of the disease. However, damage was done. Meat sellers had no business, and trade shows were non-existent. The ban on meat will not be lifted until 3 months after the last case of the disease is diagnosed. This ban is costing the industry approximately 10 million British pounds a week. So why are farmers expected to do well?
First, there is a drought in Australia, and there is huge enthusiasm in the US for bio-fuels. The first constricts the supply of agriculture globally, and the second increases demand for global agriculture, as much of the agriculture in the US turns toward fuel production instead of food production. And income levels in developing nations are rising: as they get richer, they get hungrier for higher-protein diets.
All of this points to the high probability that British farmers will see their incomes continue to increase this year (not counting the government subsidies they are receiving during the ban on meat). A tight global agricultural market means higher prices for consumers, and higher profits for farmers around the world. Since 2000, farm incomes are up 50%, and are expected to be up 7% for this year.
Farmers follow a boom-and-bust cycle. In boom periods, incomes tend to lag behind, because the high supply keeps prices down. In bust cycles, incomes (for those who don’t go bankrupt) rise, as the limited supply raises prices for consumers. It appears that we may be in the bust-section of the cycle, as farmers are doing well, and consumers are paying more for their goods.
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